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en-USBoost Your Savings With This Easy Budgeting Systemhttp://www.wisebread.com/boost-your-savings-with-this-easy-budgeting-system
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<p>When it comes to saving and investing, it helps to have a system. My family has developed our own system of saving money that has allowed us to reduce our spending and direct more of our money toward long-term goals.</p>
<p>In a sense, this system is similar to the famed <a href="http://www.wisebread.com/6-secrets-to-mastering-the-debt-snowball" target="_blank">&quot;snowball&quot; debt-reduction approach</a> in that it focuses a person's attention on small, achievable goals. But while the snowball method is geared toward paying down small debts before large ones, our method is more focused on saving money in small increments, and hoping that small gains eventually turn into large ones.</p>
<p>My system does require some discipline and it can be challenging. But the challenge is part of what can make the system fun. (See also: <a href="http://www.wisebread.com/7-smart-money-challenges-you-can-totally-do?ref=seealso" target="_blank">7 Smart Money Challenges You Can Totally Do</a>)</p>
<h2>1. Track your spending</h2>
<p>We use credit cards and debit cards for most purchases, allowing us to have a real-time record of what we're spending. Our credit card company does a good job of placing our expenditures into categories such as &quot;restaurants,&quot; &quot;automotive,&quot; &quot;grocery,&quot; and &quot;entertainment.&quot; Account aggregation websites such as Mint and Personal Capital can help with this as well. (See also: <a href="http://www.wisebread.com/these-5-apps-will-help-you-finally-organize-your-money?ref=seealso" target="_blank">These 5 Apps Will Help You Finally Organize Your Money</a>)</p>
<h2>2. Find monthly averages</h2>
<p>Once your spending is tracked and categorized, it's time to do some math. Your goal should be to determine what you spend in each category each month, on average. I like to find the average over the previous 12 months, but a six-month average is also OK. Once you determine those averages, save them into a spreadsheet. Each of those numbers is now your starting monthly budget for those categories.</p>
<p>For example: Let's say that you have spent $1,000 eating out at restaurants over the last 12 months. That averages to about $83 per month. Your goal for the upcoming month should be to keep your restaurant spending under $83.</p>
<p>It's important to also include monthly averages for large, but irregular expenses. Perhaps you spent nothing on auto repairs during 11 months out of the year, but spent $2,400 in July. In this system, it's prudent to budget $200 per month for auto repairs so that you have money saved if you encounter a similar expense.</p>
<h2>3. Beat and lower your averages</h2>
<p>We all know it's not good enough to be average. You want to be better than average, right? So your goal each month should be to spend less &mdash; significantly less, if possible &mdash; than your monthly average. You may not be able to beat your average in every spending category, but you'll likely spend less in some places and hopefully lower your spending overall.</p>
<p>If you spend less than your average in a given month, the next step is a crucial one: It's imperative that you lower your goal based on your new average. In other words, if your goal was to beat your average $50 in fast food expenses during the month, and you find that you've spent $40, it's time to recalculate your average and make that the new goal. Embrace the challenge!</p>
<h2>4. Try to beat your best</h2>
<p>If you really want to challenge yourself to save money, adjust your monthly budgets even lower to have them in line with your best month, not your average. We all have that one month where we impress ourselves with our financial discipline. Maybe you went an entire month only going out to eat once. Perhaps you had one month where you were super about saving energy. Find that month, and make that the new budget baseline. If you can beat that number on a consistent basis, you're doing awesome.</p>
<h2>5. Savor the small victories</h2>
<p>One of the reasons I like this system is that it allows you to zero in on specific parts of your finances without getting overwhelmed by the big picture. It can be demoralizing to look at your total lump sum of expenses and debt and feel like you're not getting ahead. But if you are focused on reducing spending in various categories, you have many opportunities for small wins. Even if your overall spending didn't decline much during a month, you can feel good that you <a href="http://www.wisebread.com/shop-the-salad-bar-and-other-ways-to-save-big-on-groceries" target="_blank">spent less on groceries</a>, or found ways to <a href="http://www.wisebread.com/34-smart-ways-to-cut-your-electric-bill" target="_blank">reduce your electric bill</a>. That good feeling can be contagious, and before you know it, you'll find that you are spending less overall.</p>
<h2>6. Treat saving like an expense</h2>
<p>My family makes a point of putting away a set amount of money each month into a variety of separate savings and investment accounts. There is money directed toward Roth IRA accounts, some funds placed in 529 College Savings plans, and another amount put into an online savings account with a higher interest rate. We also set aside money for big ticket items, such as a new car. When we track our spending, we treat these like expenses. Only in this case, we are treating these costs in the opposite way we treat our day-to-day expenses. Rather than reduce this number, we want to <em>increase </em>it if possible. So if you're putting $100 a month into an IRA, try to bump that up to $110 or $125. This may require you to reduce your spending budgets in other areas, but that's the whole point, right? (See also: <a href="http://www.wisebread.com/5-retirement-accounts-you-dont-need-a-ton-of-money-to-open?ref=seealso" target="_blank">5 Retirement Accounts You Don't Need a Ton of Money to Open</a>)</p>
<h2>7. Pay down debt or add to savings</h2>
<p>This system is all about saving money, so if you reduce your spending in one area, it's a bad idea to go and increase spending somewhere else. If you find that you have spent less in one category in a given month, use that money to pay down debt faster or increase your savings investments. Let's say you spend $25 less on groceries this month. Well, think of that as $25 more to pay off your auto loan, place into your IRA, or fund your college savings account. (See also: <a href="http://www.wisebread.com/5-day-debt-reduction-plan-pay-it-off?ref=seealso" target="_blank">5-Day Debt Reduction Plan: Pay It Off</a>)</p>
<h2>8. Keep an eye on new expenses</h2>
<p>No matter how maniacal you are about saving, there will be times when you are forced to increase spending in some areas. If you have a child, rest assured you will be spending more on food, clothing, and a host of other things. If you have an older car, you may find yourself paying more for repairs. You may get a new job that adds income but also commuting costs. It's fine to make appropriate adjustments to your budgets as you go, as long as you eventually settle into a practice of trying to reduce spending and boost savings whenever possible.</p>
<h2>9. Throw new income into savings</h2>
<p>This system is all about reducing spending and finding ways to shift your money from costs to savings and investments. Income is not irrelevant, because you need to know how much you have to work with. But you should try to avoid making grand changes to your budgets if you get a boost in pay. Any new money you have should be used to increase savings, pay down debt, or invest. It should not be used to increase your individual budgets. If you got by spending $200 on groceries before your pay raise, you can get by on that same amount now. (See also: <a href="http://www.wisebread.com/how-to-budget-when-youre-no-longer-broke?Ref=seealso" target="_blank">How to Budget When You're No Longer Broke</a>)</p>
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<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/boost-your-savings-with-this-easy-budgeting-system">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2">
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</div> </div><br/></br>Personal FinanceBudgetingdebt reductionmoney challengesoverspendingreducing expensessaving moneysnowball methodspare changeFri, 27 Oct 2017 09:00:06 +0000Tim Lemke2040130 at http://www.wisebread.comCreate Your Own Raisehttp://www.wisebread.com/create-your-own-raise
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<p>If you're one of the many who hasn't gotten a raise since 2007, perhaps you need to create your own raise. (See also: <a href="http://www.wisebread.com/replacing-a-crappy-job">Replacing a Crappy Job</a>)</p>
<p>It's a simple concept &mdash; cutting your expenses by a few percent is effectively the same as boosting your income by a few percent. In fact, it's better, because you'd have to pay taxes on any extra income, while reducing your spending is tax-free. (In fact, reducing your spending often means you pay <em>less</em> tax &mdash; less sales and excise taxes.)</p>
<p>Of course most people have already thought of this and have already cut their spending as much as they figure they can without cutting their standard of living. Most people are wrong.</p>
<p>You can verify that with this simple two-step process.</p>
<h2>1. Track Your Spending</h2>
<p>Unless you've been tracking your spending, you almost certainly have no idea where a big chunk of your spending is going. I can just about guarantee that if you go through the exercise of tracking your spending, you'll discover that 3%, 5%, 7% of your money is leaking away. Maybe it's going for fancy coffee drinks or your bar tab or workday lunches or the office vending machines or groceries that spoil before they get eaten. I don't know &mdash; but unless you're tracking your spending, <em>you don't know either</em>.</p>
<p>I've got a post that's on topic &mdash; <a href="http://www.wisebread.com/track-your-spending-or-not">Track Your Spending. Or Not.</a></p>
<h2>2. Identify Some Economizations</h2>
<p>If you were trying to completely remake your finances, you'd have to look at the top of your spending &mdash; at the big items such as mortgage or rent, car payment, stuff like that. But let's put those aside for a bit. You're just looking to create a raise &mdash; a raise that would likely have been only 3% or 4%, if you'd gotten one.</p>
<p>When all you need to find is 3% or 4%, there's a lot of room at the bottom &mdash; in the small expenses and especially among your little luxuries</p>
<p>If your income has been stagnant for a few years, you probably don't feel like you've got many luxuries any more &mdash; because you haven't added any new ones in a while, and you got used to the old ones long ago.</p>
<p>To that end, I'd like to suggest a little mental trick for identifying your luxuries &mdash; pretend you're going through <em>someone else's budget</em>.</p>
<p>Imagine an acquaintance has come to you for help making a budget. Imagine that they've been living a bit beyond their means. Imagine that, even though you're pretty sure that they don't make any more money than you, you've noticed that they've been buying stuff that <em>you</em> can't afford. Imagine that the whole thing has caught up with them, and they desperately need to economize.</p>
<p>Then look at your notes on where your money's been going and tell your &quot;acquaintance&quot; where they might economize.</p>
<p>Of course, they're no doubt strongly wedded to their luxuries, just like you are to yours, but so what? They need to economize, and you're there to help.</p>
<p>I made a similar suggestion in this post &mdash; <a href="http://www.wisebread.com/on-choosing-and-defending-your-luxuries">On Choosing and Defending Your Luxuries</a>.</p>
<p>Here are a few thoughts on where to look:</p>
<ul>
<li>What little expenses do you pay cash for (or casually swipe a debit card for)? If you could cut just a dollar or two per day, you're instantly saving hundreds of dollars a year.<br />
&nbsp;</li>
<li>What expenses are just old habits? I once got into the habit of having dinner out once a week, because I had a class that kept me from going home at dinnertime. But I continued even after the class ended, because I enjoyed it. I only cut it when I did the math and realized what the expense added up to.<br />
&nbsp;</li>
<li>Especially look at your <a href="http://www.wisebread.com/start-with-recurring-monthly-expenses">recurring expenses</a>. Could you raise a deductible on your insurance? Go to a cheaper plan for your cell phone or internet service? Find a less expensive fitness center? Cut your utility bill by adjusting your thermostat and switching off things you're not using?</li>
</ul>
<p>Unless you've gone through this exercise already this year, I have no doubt you can cobble together a few little cuts that will add up to a 3%, 4%, or even 5% raise.</p>
<h2>Next Year's Raise</h2>
<p>Hopefully the economy will be better next year, and you'll get a real raise. But we've been hoping that for a while now. Just in case it doesn't work out that way, take a step now toward creating next year's raise.</p>
<p>Specifically, go back to those big things that I suggested you postpone taking a look at.</p>
<p>The reason I had you start with the small things is that saving money on the big things (things like housing and transportation) usually requires a long lead time &mdash; but that's okay; we've already taken care of this year. Now you're looking ahead to next year. You <em>have</em> the <a href="http://www.wisebread.com/living-cheaply-for-the-long-term">necessary long lead time</a>.</p>
<p>By looking for economizations among the big things, I'm sure you can create your next year's raise.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/create-your-own-raise">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3">
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</div> </div><br/></br>Personal FinanceBudgetinggetting a raisereducing expensestracking spendingTue, 05 Jun 2012 10:00:12 +0000Philip Brewer932971 at http://www.wisebread.com40 Tips to Accelerate Your Cash Flowhttp://www.wisebread.com/small-business/40-tips-to-accelerate-your-cash-flow
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<p>Business is actually quite simple &mdash; generate positive cash flow, and hopefully lots of it. In practice, however, it is a little harder to accomplish. Here's some practical advice to improve your <a href="http://ad.doubleclick.net/clk;218396076;41475586;v?http://www201.americanexpress.com/sbsapp/FMACServlet?request_type=alternateChannels&amp;lpid=298&amp;openeep=17460&amp;ccsgeep=17460">cash flow</a> in the following five areas: Expedite Cash In, Optimize Cash Out, Increase Revenue, Decrease Expenses, and Save Taxes.</p>
<h2>Expedite Cash In</h2>
<p>1. Invoice on-time because every day you are late is at least one more day your customer will wait to pay.</p>
<p>2. Give credit to those deserving and consider this policy: &quot;In God we trust &mdash; everybody else pays cash.&quot;</p>
<p>3. YOU set credit terms, not your customers. Do not let them dictate your payment terms or consider getting a new customer.</p>
<p>4. Invoice your customers as early in the process as possible.</p>
<p>5. Make collections a core competency and only outsource it if you have exhausted all internal resources.</p>
<p>6. Cut off customers who haven't or appear that they won't pay.</p>
<p>7. Deposit checks immediately &mdash; you may want to consider remote deposits or other options to turn checks into cash quickly.</p>
<p>8. Offer several convenient payment methods &mdash; customers should never have an excuse for late payment related to your lack of convenient payment options.</p>
<p>9. Set the payment expectations of new customers with a welcome letter.</p>
<p>10. Know your customers' payment procedures. Imagine the power in this conversation: &quot;Tom, I'm aware you will be cutting checks this Friday and I wanted to ensure my invoice will be paid with one of those checks.&quot;</p>
<p>11. Stop carrying the 20% of your inventory that takes the longest to sell. In addition to your cash, your margins will actually increase because your inventory turns will likely skyrocket!</p>
<p>12. Negotiate with one or two layers up in your supply chain to hold the inventory longer.</p>
<p>13. Complete and close out past due projects.</p>
<p>14. Watch out for factoring &mdash; while the immediate cash is nice, effective rates for these services are often far in excess of 36% annually.</p>
<h2>Optimize Cash Out</h2>
<p>15. Demand trade credit from your suppliers, vendors, and contractors.</p>
<p>16. Take early-pay discounts if they are for at least 2%. If they are less, they are usually not worth it.</p>
<p>17. Deduct employee-paid premiums one month in advance. You should have the money from the employees by the time you pay the bill.</p>
<p>18. Renegotiate vendor/supplier contracts.</p>
<p>19. Improve asset productivity with more volume, an additional shift, or technology.</p>
<p>20. Avoid giving advances and loans to employees and others.</p>
<p>21. Refrain from the temptation to take money from your successful business and invest in another business in which you have little or no experience.</p>
<p>22. If <a href="http://www.openforum.com/idea-hub/topics/money/article/8-ways-great-service-prevents-chargebacks-julie-rains">chargebacks</a> are likely, hold back a percentage of the payments you make to vendors and then settle-up with them once the chargeback is incurred.</p>
<h2>Increase Revenue</h2>
<p>23. Improve your understanding of your customers' needs through surveys and perfect your marketing angle to maximize your marketing efficiency.</p>
<p>24. Build and promote inexpensive but high-impact customer loyalty programs.</p>
<p>25. Create barriers or hooks to keep customers from switching.</p>
<p>26. Increase prices where appropriate &mdash; review at least annually.</p>
<p>27. Design and implement referral, affiliate, and re-seller marketing programs.</p>
<p>28. Use a freemium or no-cost but watered-down version of your service/product to attract users and make a compelling argument to encourage them to upgrade to a paid version.</p>
<p>29. Use contest and event marketing principles to generate &quot;buzz.&quot;</p>
<p>30. Direct production and service employees who have free time towards marketing and sales activities until the volume picks back up.</p>
<h2>Decrease Expenses</h2>
<p>31. Renegotiate fixed expenses like your office lease and business service contracts.</p>
<p>32. Operate above break even. Eventually all businesses run out of cash if they cannot run profitably.</p>
<p>33. Automate the mundane and use your human assets to innovate and add value.</p>
<p>34. Take the lead amongst your competitors and innovate your business model in both effectiveness and efficiency.</p>
<p>35. Use &quot;best practice&quot; purchasing principles to ensure you are receiving the best quality, price, or combination of the two that adds the most value to your product or service.</p>
<h2>Save Taxes</h2>
<p>36. Use section 179 and bonus depreciation for qualifying capital expenditures.</p>
<p>37. Implement a section 105 and/or 125 plan to render health insurance premiums and expenses tax-free, where possible.</p>
<p>38. Capitalize on home office deductions and business mileage tax-free reimbursements</p>
<p>39. Maximize all other deductions allowed for business owners</p>
<p>40. Use retirement plans, charitable giving, family LLCs, and other advanced tax-planning principles to fill all of the low-bracket tax &quot;buckets&quot; and decrease your effective tax rate.</p>
<p><em>This is a guest post by <a href="http://www.cfowise.com/author/kkaufman/">Ken Kaufman</a>. Ken focuses his professional efforts on helping entrepreneurs maximize cash flow, improve profits, and obtain clarity.</p>
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</div> </div><br/></br>EntrepreneurshipSmall Business Resource Centercash flowreducing expensessmall businessThu, 18 Mar 2010 22:32:28 +0000Ken Kaufman5588 at http://www.wisebread.comEmergency belt-tightening http://www.wisebread.com/emergency-belt-tightening
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<p>Typical personal finance advice would have you divide your budget categories into two groups:&nbsp; Your fixed expenses and your discretionary expenses.&nbsp; I generally don't like that distinction much--how is your power bill more fixed than your grocery bill?&nbsp; When you reach the point of emergency economizing, though, it's a useful way to structure your thinking.<br />
<a href="/manage-your-fixed-expenses"><br />
Fixed expenses</a> can be reduced, but those reductions often require long lead times (waiting for a lease to run out, so you can move to a cheaper place) or they require an upfront investment (buying a more energy-efficient refrigerator).&nbsp; Even when you can cut them, it's generally not practical to reduce them to zero, (except for those few people living off-the-grid).</p>
<p>So, in a financial emergency, the first place to look is at your discretionary expenses.</p>
<h2>Start with zero</h2>
<p>If you've got a <a href="/refactor-your-budget-categories">budget</a>, go through the non-fixed expenses and plug in zero for every number.&nbsp; Then, go back and adjust up the ones that are really essential.&nbsp; (<a href="/a-better-way-to-create-a-budget">Starting from zero</a> and just budgeting what your household needs is, by the way, always a good idea.)</p>
<p>You've got to have <strong>food</strong>.&nbsp; In an emergency, though, you can cut your food bill by a lot more than you probably think.&nbsp; (And, as a bonus, <a href="/healthy-frugal-eating">cheap eating</a> is probably healthier than what you were eating before, even if it may have to be less organic and less local.)</p>
<p>You've got to stay <strong>healthy</strong>.&nbsp; If you've got medical insurance, keep it in effect if you possibly can.&nbsp; If you're being treated for a medical condition, call your doctor's office and inquire if the treatment you're getting is the lowest-cost treatment that's available.&nbsp; (The phone conversation--typically with a nurse or physician's assistant--will probably be free.)&nbsp; In a financial emergency, it probably makes sense to delay even things that are important, if they're not urgent--eye and dental exams, routine check-ups, etc.</p>
<p>If you've still got a job, you probably need <strong>transportation</strong>.&nbsp; In an emergency, though, you should zero out any transportation expense that isn't earning you money.&nbsp; Every trip should be either to work or from work, with stops for errands along the way and not trips of their own.&nbsp; Reducing the number of cars your household supports can save a huge amount of money--<a href="/think-you-can-afford-more-house-in-the-exurbs-think-again">each car costs thousands of dollars a year</a> in fuel, insurance, and financing expenses.&nbsp; Consider things like carpooling, public transport, walking, bicycling, and so on.</p>
<p><strong>Education</strong> is tricky.&nbsp; If you're not in school, zeroing out your education budget doesn't save you much money.&nbsp; If you are in some sort of degree program, disrupting it might reduce your future earnings by vastly more than you're saving--and yet, that might be the right choice in an emergency.&nbsp; On the other hand, if financial aid is paying most of your education expenses, or if your health insurance depends on your being a full-time student, your education expense may be too good a bargain to pass up if you can possibly afford it.</p>
<p><strong>Debt payments</strong> generally can't be escaped, except by filing bankruptcy, which is obviously a last resort.&nbsp; There may be a few exceptions--student loans can be deferred under certain circumstances, there are moves afoot to develop programs for restructuring mortgages.&nbsp; For debts that are tied to some specific thing (such as a car), consider selling the thing and putting the money toward the loan.&nbsp; Doing that will generally leave you out of pocket, but getting the monthly payment off your back can still leave you ahead--the sort of hard choice you sometimes have to make in an emergency.</p>
<p>That's about it.&nbsp; Every other discretionary expense should go to zero:&nbsp; recreation, eating out, vacation, travel, clothes, shoes, etc.</p>
<h2>Defer what you can't avoid</h2>
<p>Many expenses that can't be avoided can be deferred in an emergency.&nbsp; Generally, don't replace (or pay to repair) things that break or wear out.&nbsp; For example, instead of getting a broken dryer fixed, <a href="/make-your-clothes-last-longer-without-spending-big">dry your clothes on a drying rack</a> until the emergency is over.&nbsp; (As a bonus, the clothes will last longer.)&nbsp; You probably can't get away without fixing your furnace or hot water heater, but you can get by without lots of things that you're used to using every day--microwave, toaster, TV, stereo, iPod, etc.&nbsp; Make them last as long as you can, but when they go, do without until the emergency is over.</p>
<p>Sometimes proper maintenance will save a lot of money in the long run if done promptly--replacing a roof before there's water damage--but in an emergency, it's often necessary to accept that you won't be able to make the choice that's cheapest in the long run, because you're short of cash in the short run.&nbsp; That's the nature of emergencies--you do what has to be done, and then do what you can to mitigate the harm after the emergency is over.</p>
<h2>Ask for necessities</h2>
<p>If you have relatives who give you gifts, ask that they give you necessities instead of luxuries.&nbsp; Nobody wants to get socks and underwear for Christmas--except people with holes in their socks and worn-out elastic in their underwear.</p>
<h2>Use your time</h2>
<p>If your financial emergency is due to the loss of a job, you've now got time that you didn't used to have.&nbsp; Some of it--most of it--should probably go toward finding a new job.&nbsp; But there's still time that can be used in place of spending money.&nbsp; Cook cheap meals from scratch (much cheaper than prepared meals).&nbsp; Do stuff around the house that you might otherwise have hired someone else to do.&nbsp; See if you can't do stuff for neighbors--helping in their garden, showing them how to create a website, and tutoring their kids can keep you on a more even footing when they're sharing produce from their garden, giving you rides into town, and letting you use their tools.&nbsp; Make things (sweaters &amp; scarves, jellies &amp; jams, beer &amp; wine, cakes &amp; pies) that you can give as gifts or barter for stuff you need but can't make.</p>
<h2>Look ahead</h2>
<p>Don't dismiss the fixed expenses entirely.&nbsp; For one thing, even small measures like adjusting your thermostat and turning off lights you're not using will definitely save dollars, even though they won't reduce your utility bills to zero.&nbsp; For another, even &quot;fixed&quot; expenses are only fixed in the short term.&nbsp; Depending on how long your emergency lasts, some (or even many) of your fixed expenses will become unfixed.&nbsp; Know when your lease is up, when your cell phone contract is up, when the term ends for your kid's private school.&nbsp; Look especially at annual fees that will get charged automatically if you don't cancel something.&nbsp; Figure out <strong>now</strong> when you'll have to put the wheels in motion in order to switch to a lower-cost option at the next opportunity. &nbsp;</p>
<p>If you're not in debt, it's pretty amazing how low you can push your expenses on an emergency basis, simply by zeroing out all your discretionary spending and deferring other spending (including essential spending) until the emergency ends.&nbsp; As in so many other areas of life, it's really debt that's the killer.&nbsp; In fact, I'd go so far as to suggest that, in the current economic situation, having any significant debt means that you're already in a financial emergency--even if you've got a good job and a solid <a href="/figuring-the-size-of-your-emergency-fund">emergency fund</a>.&nbsp; I recommend some preemptive belt-tightening and getting that debt paid off.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/emergency-belt-tightening">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1">
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</div> </div><br/></br>Frugal Livingbudgetbudgetingcutting expensesemergencyfinancial emergencyfixed expensesfrugalityliving expensesreducing expensesFri, 07 Nov 2008 23:33:47 +0000Philip Brewer2573 at http://www.wisebread.comStart with recurring monthly expenseshttp://www.wisebread.com/start-with-recurring-monthly-expenses
<p><img width="278" height="400" title="Calendar page" alt="Calendar page" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/july-2007-calendar.png" /></p>
<p>I tend to divide spending up into four categories. From best to worst they are: investments, items of enduring value, ephemeral items, and recurring monthly expenses.</p>
<p><strong>Investments</strong> include not only stocks and bonds and such, but also anything that can help you earn money. Tools are investments, as are a classes. I just bought two books that I'm reading before a possible job interview--they're an investment. Some investments may not pay off, but even unsuccessful investments are still investments.</p>
<p><strong>Items of enduring value</strong> are anything that you're not going to have to replace anytime soon. This is kind of a sliding scale. I bought my bicycle in 1984 and it's still in nearly perfect condition--definitely an enduring value. My iPod I bought in 2005 and it's still got a couple years of use, I hope, so it's somewhat enduring. Clothes and shoes are not necessarily enduring, but can be. All these items raise your standard of living for as long as they last.</p>
<p><strong>Ephemeral items</strong> last only briefly: a movie, a restaurant meal, a hotel room. They also raise your standard of living as long as they last, but they last such a short time it hardly counts. These tend not to be budget killers, except when they're purchased over and over again. If they do, then they belong in the next category.</p>
<p><strong>Recurring monthly expenses</strong> are the worst. I'm always cautious about adding a new recurring monthly expense to my budget.</p>
<p>Most books and articles on personal finance exhort you to make cuts in the budget for ephemeral items first, because that's the easiest place to find something you can cut right away. They're wrong, though: Start with the recurring monthly expenses.</p>
<p>To be fair, the books are only half wrong. They talk about ephemeral items, but they always seem to use a latte as their example, pointing out that omitting one latte a day can save you dozens of dollars a month and hundreds of dollars a year. They often calculate the potential return if you invested that money for a few years. (Three dollars a day invested in an S&amp;P index fund that returns 10% over 5 years will be worth $7102!)</p>
<p>The thing is, if you're buying a latte every day, it's not really an ephemeral expense; it's another recurring expense. And, as I said, that's the place to start.</p>
<p>Since recurring monthly expenses (an apartment lease, a cell phone contract, a fitness center membership, etc.) are often locked in for months or years at a time, it's hard to make quick progress reducing them. But that just makes starting as soon as possible--before you lock in another year or two--all the more important. The payoff in reducing recurring monthly expenses is huge. (Just like with the latte, only with bigger dollar amounts.)</p>
<p>I give any potential new recurring monthly expense a hard look:</p>
<ol>
<li>If I've done without it for this long, I probably don't need it. There are plenty of things other people pay for every month that I just do without.</li>
<li>I look long and hard for an alternative that doesn't involve a recurring monthly expense. Maybe you can buy a pair of good scissors and a book on cutting your own hair--a one-time investment instead of a recurring expense. Maybe you can find a hairstyle that grows out well and get your hair cut much less often.</li>
<li>If there is no such alternative, I do some careful research into whatever it is, trying to find the sweet spot where I get the best value at the lowest price. Some people find looking for bargains rewarding (beyond the money saved itself). I generally don't, so I don't spend a lot of time and effort bargain hunting--except for recurring monthly expenses.</li>
</ol>
<p>I do the same thing for existing monthly expenses (although step 1 is harder: if it's something I've grown accustomed to, it can be tough to cut).</p>
<p>I don't put nearly the same level of effort into the ephemeral expenses. For example, I generally don't bother to look around for deals on these items. I pay attention to what a restaurant meal costs, but I'm really more interested in whether I like the food. The key with ephemeral items is to keep the quantity under control, not to find the best deal.</p>
<p>With enduring items, I focus on quality. Something might well be worth more if it'll either serve its function better or last longer.</p>
<p>Analyzing investments is worth a post all its own, but it's all about risk, reward, and liquidity.</p>
<p>Start with the recurring monthly expenses. That's where the money is.</p>
<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/start-with-recurring-monthly-expenses">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2">
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</div> </div><br/></br>Personal FinanceBudgetingbudgetingreducing expensesspendingThu, 26 Jul 2007 10:17:28 +0000Philip Brewer905 at http://www.wisebread.comHow to live on $12,000 a yearhttp://www.wisebread.com/how-to-live-on-12-000-a-year
<p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/mason_jarjpg.jpg" alt="saving jar" title="saving jar" width="300" height="212" /></p>
<p>In my first job out of college, I was on 12,000 English pounds per year. That was back in London in 1996, i was single, lived with two friends and only had rent and travel to pay for. And I still remember how tough that was. Well, one person is doing that right now (right here in the US of course) and recording the experience for us all to share.</p>
<p>The story comes from a site called <a href="http://w4resistance.org/simpleliving.html">w4resistance.org </a> (as you can imagine, it's more radical in its approach than your average blog). I can't say I am an advocate for everything in the list, I actually want to have a life. I like eating out now and then, and I really don't have the time to unplug every appliance after using it to save $20 a month. But, cherry pick the ones you think are applicable and leave the ones you don't. Here is the bulk of the list, with an introduction from the author...</p>
<p><em>&quot;How can one possibly live on just $12,000 year, unless you live on the streets?&quot; one might ask. Well it is possible, I've been doing it for the past three years, ever since the Iraq war started and I wanted no part of it. I also had some reduction in my income due to the merger mania that is going on in the United States, so as one of the old jokes goes, &quot;This is a non profit corporation, it's not what we intended, but that's what it turned out to be&quot; </em></p>
<p><em>When faced with a cash flow problem, the first thing to do is cut all expenses that you can immediately without having to spend money to do so. Use the money that you save to invest in money saving alternatives, then go to work on finding ways to reduce your greatest expense. For most of us, that will be your housing. But it might take awhile to find a cheaper apartment, sell that 4000 square foot monster you were talked into buying or find an alternative living arrangement.</em></p>
<p><em> So here is what I did first that doesn't require any &quot;investment&quot; at all.</em></p>
<ul>
<li>I got rid of the cable TV/Satellite service. That saved me $50 a month. You'll save at least $40 and up to $100 if you got suckered into &quot;Premium&quot; services such as <em>Showtime</em> or <em>HBO</em>. Television is garbage anyway, and you are better off not watching it. True, there are some things on PBS, Discover and the History Channel that are worth while, but it's not worth spending $50 a month for. I still own a television set, but it is used mostly to watch tapes and DVDs borrowed from friends. It's hooked to an outside antenna for the rare moments, such as a flood emergency, that I even want to watch broadcast television.</li>
</ul>
<ul>
<li>The next item was to get rid of all the &quot;Phantom Loads&quot;. What is that? You may ask. That is all the electrical appliances in a typical household that still draw current, even though they are &quot;off&quot;. The worst offenders are TV sets, VCRs, anything with a remote control. You see, in order to respond to the power on command from the remote control, part of the set still must be &quot;on&quot; in order to receive commands from the remote. While the drain may only be a couple of watts, the fact that the drain is continuous makes it all add up. I unplug all these appliances when not actually in use or put them on a switched outlet. I saved slightly over $20 a month on my electric bill by getting rid of these phantom loads.</li>
</ul>
<ul>
<li>I started driving less. I was shocked to find that I was spending over $2000 a year for gasoline, and that was before prices went nuts. Since I run my own business, I don't have to show up 5 days a week. There was nothing at the post office that couldn't wait a day, so I started driving only three days a week. I took the time to work out on a map a minimum mileage route for things that need to be done. Grocery shopping is done only once a week. Before going on the shopping trip, I check the pantry for items that are running low and buy enough to last a week. If I run out of something, too bad, it waits till the next shopping trip and I learn to be more careful about checking stock before I go. Of course I always take advantage of sales, but only if the unit cost of the sale item is less than buying the house brands. Which is a good segue into the next item.</li>
</ul>
<ul>
<li>I Buy house brands. With few exceptions, house brands are every bit as good as the over advertised national brands. You'll save anywhere from 5% to 25% by switching to a house brand. The only items that I found in house brands that were not as good were dry cat food (the cat's did not seem to do well) and lab tests have shown that house brand dietary supplements do not have the same level of active ingredients as name brand supplements. However note that the house brand OTC drugs and prescription drugs are every bit as good as the name brands, it's only the supplements that have the problem. You can also minimize the need for supplements by eating a well balanced diet.</li>
</ul>
<ul>
<li>I Cook from scratch. Prepared food is always more expensive, and full of additives that are probably not good for you. Even simple items like <em>Bisquick</em> contain things like soluble salts of aluminum, which have been implicated in Alzheimer's disease. You are better off health wise and financially by making your own baking mix from flour and baking soda. <a href="http://w4resistance.org/weeklydiet.html">Here</a> is my weekly diet. It is mostly vegetarian, although it does have poultry two days a week.</li>
</ul>
<ul>
<li>I never buy &quot;Soft Drinks&quot; (known as 'soda' or 'pop' in some parts of the country). Why waste money on sugared water that is not good for you? If I'm thirsty, I'll drink tap water, which is the best thirst quencher.</li>
</ul>
<ul>
<li>I Eat In, I Don't Eat Out: When you eat out, you have to pay for the rent or mortgage on the restaurant building, the wages of the employees, and the profit for the owner as well as the cost of the food and the fuel to cook it. By eating at home, the only costs are the food and the fuel. I saved $35 a month by switching to Friday night dinner at home. This is in an area where you can get a good restaurant meal for $10 a person. You'll save even more in an expensive city. Even a frugal meal at the local fast food emporium is going to set you back $5.00. You can &quot;brown bag&quot; a meal for less than $1.00. Oh, be sure to reuse the bag until it falls apart, which brings us to:</li>
</ul>
<ul>
<li>I <strong>Never</strong> buy garbage bags. Reuse the bags that you get at the grocery store for your lunch container and for putting out the garbage. Sure they are small, but who cares? They all go into a garbage can just fine! I know that some people just set out the 20 gallon garbage bags by the curb, but that is just asking for the garbage to be raided by animals before it gets picked up.</li>
</ul>
<ul>
<li>I keep the heat down during heating season. My house is zoned, so rooms that are not being used are set to 55 F. Rooms that are infrequently used are set to 60 F. I have one &quot;warm room&quot; that I keep at 65. If you have forced air, you can close off the registers to the unused rooms. If you have electric baseboard heat, those usually have individual controls. If you have hydronic baseboard heat, the best you can do is close the flaps on unused rooms. If you have one pipe steam, you can install a <em>Varivalve</em> in place of the standard vent, as the name implies, the device is adjustable. Don't try to moderate a one pipe steam system by closing the radiator valve part way, you'll just have knocking and banging if you do.</li>
</ul>
<ul>
<li>I use the wood stove for heat: I'm fortunate enough that the place where I live has a Franklin Stove and 50 acres of woodlot that can be harvested in a sustainable manner, so when I'm home, I use the wood stove.</li>
</ul>
<ul>
<li>I don't use air conditioning during cooling season. Where I live, there are only 10 or 12 really bad days a year. I set up a bed in the basement on really hot nights, rather than put in an air conditioning system. People in really warm climates can save by setting their AC to 85 F, which is enough to take the edge off the heat and even more important, reduce the humidity.</li>
</ul>
<ul>
<li>I don't buy things that I don't really need: Making a shopping list before going to the store really helps. I only buy things that are on the list. I don't go to the grocery store on an empty stomach, so that I'm not tempted to buy junk food. Instead of buying music CDs, which probably only have one good cut on them, I listen to music for free over broadcast radio. If it's a song that I really want my own copy of, I buy the single on the Internet for $1.00. Before buying anything, I ask myself, &quot;Do I really need this? Is it of lasting value? If I won't use it that often, can I borrow it from someone or rent it instead of buying my own?&quot;</li>
</ul>
<ul>
<li>I repair things instead of buying a replacement: A good rule of thumb is repair it unless the repair is going to cost more than half of the replacement cost, or in the case of a car, more than half of it's market value. Learn to fix things yourself, which will reduce the repair cost. There are plenty of places on the web where you can learn how to do simple plumbing, car, and other house repairs. Even if a repair is beyond your skill or should not be attempted DYI because of safety reasons, you should at least learn the basic technology so that you won't get taken by a con artist.</li>
</ul>
<ul>
<li>If I do need an item, I try to buy used: With the exception of some appliances like refrigerators, where it makes more sense to buy the newest most energy efficient model, I save money by buying used. I buy &quot;last years&quot; computers at close out sales, they are more than fast enough. When my truck is so old that it's rusted out or I can't get parts for it anymore, I replace it with a three or four year old model. Since depreciation is non linear, that is, the value goes down more quickly when it is brand new, you save a lot of money overall. Which is a good segue to the next item in this list.</li>
</ul>
<ul>
<li>I never pay interest: If I can't afford to pay cash for an item, I either find a less expensive one, such as paying cash for a $9000 car instead of having to get a loan to buy a $12,000 car, or wait until I've saved enough to pay cash. I always pay off the full balance on my credit card every month. The only exception to this rule is if I can get a really good deal on the loan, meaning that I can take the cash and invest it in a municipal bond fund that is paying more interest than the loan interest.</li>
</ul>
<ul>
<li>Hang out clothes to dry instead of using a clothes dryer. This can save up to $40 a month, depending on the size of your family and how often you do laundry. During the winter, I hang clothes inside, as this serves to add needed humidity to the air. During the summer, this means planning to do laundry on a sunny day.</li>
</ul>
<ul>
<li>I don't smoke, never have, but if you do smoke <strong>quit!</strong> Not only is quitting good for your health, it's good for you finances! A smoker with a two pack a day habit is blowing $180 a month on tobacco!</li>
</ul>
<p><em> With the money I saved from the first list, I went ahead and made the following investments.</em></p>
<ul>
<li>I Replaced incandescent bulbs and fixtures with compact fluorescent bulbs and fixtures. I would do this even before the existing bulbs burn out, you can always use the old, but still working bulbs as spares for infrequently used lights. The manufactures of compact fluorescent bulbs have finally worked out how to make the bulbs roughly the same size as what they replace, so you generally won't have to replace the whole fixture. After this, I was using less electricity living in my house than the former occupant who was only there three days a week!</li>
</ul>
<ul>
<li>I Replaced my refrigerator with a modern energy efficient model. Actually, the old one's compressor decided to lock rotor on a hot Forth of July when all the stores were closed. I beat it into running with a hammer, but figured it was not long for this world and bought a replacement when the stores opened. I was amazed at how much my electric bill went down. If you still have a refrigerator built before 1993, you will probably save enough on your electric bill to pay for the new machine within three years! Be sure that your new box has the <em>Energy Star</em> label and recycle your old machine. It is also best to go with a traditional top freezer model of less than 25 cubic feet capacity as I did. Side by sides and refrigerators over 25 cubic feet use significantly more energy.</li>
</ul>
<ul>
<li>I put in a vegetable garden: I've puttered around in the garden off and on, with varying degrees of success. The best I've done was to meet all my vegetable needs for the summer, plus have some extra tomatoes to can for use during the winter. I'm still experimenting with the best way to have a garden with my relatively poor soil and the slug problem, I lost all my peas last year to a slug invasion. I avoid pesticides, since they are an additional expense and aren't good to eat. I estimate that I can grow my own veggies for half the price that I would pay in the store. If you live in the city, the best you can probably do is to have some containers out on the patio or inside a south facing window.</li>
</ul>
<p>While the author certainly seems to be living the ultimate life of frugality, I think there are many pointers we can all take from this article. Using energy-saving lightbulbs is something I've been doing for a while. A vegetable garden is a great idea, you can't beat your own, home grown produce for taste or price. And my mum always hung our clothes out to dry. They smelled so fresh, too. I think most of us have plenty of room to trim the fat in our budgets. Save the pennies, and the dollars will take care of themselves, right?</p>
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<br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/how-to-live-on-12-000-a-year">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3">
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</div> </div><br/></br>BudgetingDebt Managementbeating the systemcutting backdebt reductionfrugal financereducing expensessaving moneytrue storiesMon, 02 Apr 2007 21:43:51 +0000Paul Michael438 at http://www.wisebread.com